Key Takeaways
- Starbucks reports fiscal 2026 results on Oct. 29, a year after paying $2.77 billion in dividends against $2.44 billion of free cash flow.
- The bar for fiscal 2026 is low: the fourth quarter needs only about $100 million of free cash flow for the year to cover the dividend.
- Most of this year’s better coverage came from capital spending falling by half, to $888 million in the first nine months of fiscal 2026.
- The real test for income investors is the fiscal 2027 plan, since capital spending back at management’s target would leave less cash than the dividend costs.
Starbucks (SBUX) reports its fiscal fourth quarter after the close on Thursday, Oct. 29. That report also brings the full-year cash flow, which shows whether the dividend was actually covered in fiscal 2026.
Last year, it wasn’t.
Free cash flow fell from $4.5 billion in fiscal 2021 to $2.4 billion in fiscal 2025, while dividends paid rose every year, from $2.1 billion to $2.8 billion. In fiscal 2025, the two lines crossed.
That year, dividends came to about 113% of free cash flow. This year is going much better: through the first nine months of fiscal 2026, dividends took 78% of free cash flow, against 137% a year earlier.
The bar for fiscal 2026 is low
Starbucks generated $2.7 billion of free cash flow through June. Its dividend costs about $700 million a quarter, so the full year comes to roughly $2.8 billion.
That means the fourth quarter needs only about $100 million of free cash flow to cover the year. In the same quarter last year, Starbucks produced more than $900 million.
Short of a disaster, fiscal 2026 clears the bar.
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Most of the room came from spending less
How Starbucks got there matters more. Capital spending on new and remodeled stores climbed every year, from $1.5 billion in fiscal 2021 to $2.8 billion in fiscal 2024.
Then it fell to $2.3 billion in fiscal 2025. Through June of this year it was just $888 million, against $1.8 billion a year earlier. Spending about $900 million less accounts for most of the $1.2 billion jump in free cash flow over those nine months.
That’s what a smaller store build looks like. Starbucks cut its fiscal 2026 target for net new stores to about 440, from 600 to 650. U.S. stores fell 2% to 16,933 at the end of June, from 17,230 a year earlier.
The China deal helped the balance sheet more than the dividend. Starbucks used cash from selling 60% of its China business to repay about $1.8 billion of debt, which brought leverage to 2.9x, near its target of about 3x. CFO Cathy Smith said the stronger balance sheet lets Starbucks “maintain our competitive dividend.” That cash only comes once, though, and next year’s dividends have to come from the business.
New stores have to come out of the same cash
Starbucks’ plan to keep opening stores while it closes coffeehouses calls for capital spending of about 5% of revenue over the next several years. It also counts on about 400 new U.S. company-operated stores a year by fiscal 2028.
Analysts expect $38.5 billion of revenue in fiscal 2027, and 5% of that is about $1.9 billion. Subtract that from the $4.7 billion of operating cash flow Starbucks generated in fiscal 2025, and you get about $2.8 billion. That’s a little short of the roughly $2.9 billion a year the dividend now costs at $0.63 a quarter. (This assumes operating cash flow doesn’t grow. Analysts expect margins to keep recovering, which would help.)
The roughly 250 North American closures announced in September add to the bill: they carry about $300 million of charges, and whatever part of that is paid in cash comes out of free cash flow.
Management has said its North American company-operated store growth may stay modest through fiscal 2027. That keeps spending down for another year, but the fiscal 2028 plan still needs those openings.
After the stock’s 11% run over two weeks, shares will likely trade on U.S. comparable sales, which management guided to 6.5% or more, and on the first look at fiscal 2027. Those numbers matter for the dividend too, because recovering margins are what grow operating cash flow. Beyond them, look for:
- Full-year free cash flow against roughly $2.8 billion of dividends paid
- Capital spending plans for fiscal 2027, against the 5%-of-revenue target
- The fiscal 2027 store plan, and whether U.S. company-operated openings start climbing back toward 400 a year
Safe this year
So will Thursday’s report show the dividend covered? For fiscal 2026, it would take a very bad fourth quarter to miss.
My take: The dividend isn’t in danger. But I wouldn’t count on raises much bigger than the 1.6% Starbucks has given in each of the last two years until it shows one year’s cash can pay for both new stores and the dividend. Management’s goal of paying out about 50% of earnings is still a long way off.
Of course, if the margin recovery keeps going, operating cash flow could grow fast enough to fund both, and the fiscal 2027 outlook is the first place that will show.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
